Kazakhstan authorities have dismantled an illicit electricity supply scheme worth an estimated $16.5 million that powered cryptocurrency miners in violation of national regulations.
Key Takeaways:
- Kazakh authorities shut down a $16.5M illegal power scheme.
- Mining firms received over 50 megawatt-hours of electricity in violation of rules.
- Kazakhstan is tightening mining regulations while advancing plans for a state crypto reserve.
The Department of Financial Monitoring (DFM) for the East Kazakhstan region, working with the National Security Committee (NSC), found that several electricity companies had illegally diverted power over the past two years.
The diverted electricity was meant for the public and strategically important enterprises but was supplied to mining firms instead.
Kazakhstan Law Limits Crypto Miners to State-Run Power Platform
Under Kazakhstan’s Digital Assets Law (No. 194-VII), miners are required to source electricity exclusively through the Ministry of Energy’s state-run platform and may only tap into the national grid during documented surpluses.
Officials say the companies bypassed these rules, supplying miners with over 50 megawatt-hours of electricity, enough to power a city of up to 70,000 residents.
“With the criminal proceeds, the organizer purchased two apartments and four cars in the capital. These assets have been frozen by court order for potential confiscation,” authorities stated.
Once a global hotspot for crypto mining following China’s 2021 crackdown, Kazakhstan has tightened its energy and licensing rules, citing concerns over power shortages and strain on infrastructure.
The regulatory shift has triggered a wave of miner departures, with Bitcoin mining rig maker Canaan among the latest to exit the country.
In June, Kazakhstan officially announced plans to establish a state crypto reserve, with National Bank Chairman Timur Suleimenov revealing that confiscated criminal assets and state-backed mining operations will serve as primary funding sources.
Suleimenov outlined that the reserve will follow international best practices for sovereign fund management.
President Kassym-Jomart Tokayev has also unveiled plans for “CryptoCity”, a pilot zone where cryptocurrencies can be used for everyday payments, signaling the government’s commitment to real-world crypto adoption.
The proposed crypto banking system will provide integrated services including digital asset exchange, storage, and transaction processing within regulated parameters.
Russia Uses Kyrgyz Crypto Hub to Evade Sanctions
As reported, Russian entities are exploiting Kyrgyzstan’s crypto infrastructure to bypass international sanctions and procure dual-use goods for use in Ukraine.
Following the passage of Kyrgyzstan’s “On Virtual Assets” law in January 2022, just weeks before Russia’s full-scale invasion of Ukraine, the country has transformed into a burgeoning crypto hub.
The law introduced formal licensing and oversight for virtual asset service providers (VASPs), paving the way for a rapid influx of new firms and exchanges.
By October 2024, 126 VASP licenses had been issued, and transaction volumes had surged from $59 million in 2022 to $4.2 billion in the first seven months of 2024 alone.
However, that boom has opened the door to abuse. According to TRM Labs, numerous Kyrgyz-registered exchanges appear to serve as shell entities, with multiple firms reusing the same addresses, contact information, and founders.
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